Is there space for project cargo on container ships?
The current market situation has seen a complete reversal of roles between the container shipping segment and the breakbulk and MPP sector. While traditionally container vessels competed for project cargo, nowadays, breakbulk, MPP and even heavy lift vessels are loading containers.
Speaking during the Project Cargo Summit, Kent-Ove Jacobsen, business development manager at G2 Ocean said that looking back 12 to 18 months, the container carriers aggressively pursued project cargo. According to some, the rates were at an unsustainably low level. “It was almost a race to the bottom which saw a number of companies going out of business”, Jacobsen said.
“Now you see goods taking over containers and being transported as breakbulk, and containers are moving directly to breakbulk, and even heavy lift vessels with 900-ton lifting capacity. That means that project cargo and breakbulk cargo are now exposed to the container market and the developments in the container market,” he said.
Project cargo on container vessels
With this capacity crunch, the question was whether there is actually a place for project cargo on container ships. Using the container vessel for out-of-gauge cargo means sub-optimisation of the vessel’s capacity, the same goes for loading containers on a vessel with large lifting capacity. However, according to Jacobsen, the current market dictates that sub-optimisation is accepted in order to keep the cargo moving.
Frank Droog, senior director business development at Maersk said that some port pairs allow for better transit times and reduced costs. However, for specialised cargo he added that it is better to look into a specialist vessel and book breakbulk or heavy lift cargo.
Stéphane Berninet, head of CMA CGM’s project cargo division chimed in noting that project cargo is part of CMA CGM’s diversification offerings to its customers, adding that heavy lift and oversized cargoes are still welcome on its vessels. He stressed that it is a question of consistency towards project customers, and is made possible thanks to prior investments in dedicated resources, skills, equipment and relationships with service providers.
While it may be a case by case situation for spot cargo deliveries, Berninet noted it is the opposite when taking into consideration the entire supply chain costs for larger projects. When it comes to medium or long-term projects involving large volume flow, regular weekly shipments, sometimes even several times in a week, offer flexibility and reliability as opposed to consolidating the whole cargo delivery into one shipment. It also enables long-term planning while also reducing costs, Berninet said.
The soaring rates
Shipping companies agree that the capacity crunch has pushed the rates up which is great from their own perspective. Not only did the container segment benefit from the higher rates, but this also spilled over to the breakbulk, MPP and the heavy lift segment.
The higher rates could also lead to more investments in fleet expansion. Samskip is already looking into right now, according to Jens Siedentopf, head of breakbulk and projects at the company, It has already been done by Hapag-Lloyd with an investment in six ultra large container vessels of 23,500+ TEU with dual-fuel engines at the end of June. Deliveries of this new tonnage are scheduled to start in 2024.
The lack of available tonnage has also put pressure on freight forwarders and shippers to book cargoes well in advance instead of doing this in the spot market, as it was previously the case. Siedentopf noted that now, more than ever, it is essential that manufacturers and freight forwarders approach the shipping companies at the earliest possible stage within their project so they can do their homework and check when and whether they actually can accommodate the project cargo.
Jacobsen agrees that project cargo movement, especially from project cargo owners with complex demands, has to be not only planned, but now booked well in advance.
Spot rates cap, gimmick or protection of relationships?
Recently some shipping companies have decided to cap spot rates increase. CMA CGM has put a cap on all spot rate increases until February 2022, in order to prioritise its long-term relationship with customers.
For some, this was a marketing gimmick, while others see the reasoning behind this. Siedentopf adds that this a good sign as the carrier has given the spot rates a reasonable limit. He also added that it is all about the trust and building the relationships, especially for project cargo which is always different.
In regards to the spot rates limit, it is not a move Samskip considered since it has not enjoyed the higher rates on the trades it operates in, like the shipping companies operating on trade lanes from Far East either east or westbound.
Johan-Paul Verschuure, project director at Rebel, a Rotterdam-based consultancy, does not believe this to be a gimmick for CMA CGM. He stresses this is a way to appreciate their long-term clients and favour them over its spot market clients.
“For the market overall, this does not matter and will have no material impact. It does not solve anything for the demand-supply balance. Capacity is actually taken out from the spot market, which may, marginally, increase the lack of capacity in the spot market even further, but this is in favour of long-term large contracts,” he said.
Verschuure sees the situation in the market changing and the containership transit times will drop either by less lockdowns, less restrictions and increased numbers of vaccinations.
Project cargo market lagging behind
Speaking of the rates, Kent-Ove Jacobsen noted that what could be seen recently is that the project market has been lagging behind the container rates. This was noticeable in the MPP vessel indexes, where there was a slower move upwards than in the container market, he said.
He added that a similar situation of the project cargo market lagging behind the container market will be observed once the container market drops.The project cargo market will be hanging a bit longer on the top before it also drops.
Commenting on this discrepancy, Verschuure said that volatility in the container segment was larger and came earlier as people were forced to stay home and start buying goods rather than services they were used to.
“In breakbulk confidence around the recovery took longer as it is more driven by industry moves, which did not shift their demand structurally,” he said.
Secondly supply chains on the breakbulk side are on average shorter in distance, resulting in less volatility due to regional differences. And thirdly, according to Verschuure, given that the container sector is highly standardised and transparent, slack in the system was much less than it is in the breakbulk sector. Supply and demand in the container segments is very closely aligned and a small hiccup is causing many problems.
“The logistic challenges were increasing in the breakbulk sector as well, but really picked up when breakbulk vessels were being chartered for containers. Then the spare capacity was taken out of the system. Therefore, in reverse, an improvement in the breakbulk sector will be the first signal for the problems in the container sector to alleviate, but then it will still take a while before the costs of transporting containers will be lowered,” concluded Verschuure.